This month the BLS Says the CPI Rose 0.1%.
The Fed’s preferred way of looking at things (All Items Less Food and Energy) has been heading nowhere on a year-over-year basis for a long time.
The details are interesting.
CPI Weights and Percent Changes
Econoday Comments
Jerome Powell back in May was right, apparel prices were destined to recover which headlines a June consumer price report that will not be raising expectations any further for a rate cut at the month-end FOMC.
The jump in apparel will be getting the headlines but housing is the important key, rising 0.4 percent for rents (3.9 percent on the year) and up 0.3 percent for owners’ equivalent rent (3.4 percent on the year). These are fundamental costs for the consumer and the tangible pressure provides a steady to rising floor for the core. Today’s report points to an upward move for the Fed’s preferred inflation gauge, the PCE core index to be posted at month-end (last at 1.6 percent). For those FOMC policy makers who aren’t completely sold on a rate cut, the CPI will offer key talking points.
Talking Points
The Fed wants more inflation.
The average Joe, who has few assets (see Net Wealth Distribution: The Bottom 50% Have 1% of the Wealth) , is sick of it all.
The last thing Joe wants or needs is a jump in rent. Shelter is a whopping 33.2% of the entire CPI.
The worst part, for those seeking to buy a home, is the alleged year-over-year shelter index is a joke. It does not include home prices which are up over 7% from a year ago.
But hey, lets not count that. Houses are assets say the economists.
And let’s also average out healthcare. Year-over-year medical care services, 6.9% of the CPI are supposedly up 2.8% on the year. Try explaining that to those not covered by a company plan, who have to buy their own insurance. The increase may be 50% or more.
Education
School is not in the above table, but it is in other tables.
College tuition, 1.6% of the CPI, is up 3.4% year-over-year. Elementary and high school tuition, 0.33% of the CPI, is up 4.1%.
Inflation Illusion
While the year-over-year numbers appear to be going nowhere.
The reported year-over-year rate of inflation is an optical illusion for anyone seeking to buy a home, anyone in a high rent district, anyone who buys their own medical insurance, and anyone in school or with kids in school.
But hey, let’s average it all out, ignore housing prices, other asset prices, etc., and pray for more inflation, while paying 0% interest on savings.
Deflation Coming
In a foolish attempt to prevent routine CPI deflation, the Fed propagated bubbles in equities, junk bonds, and housing.
In doing so, the Fed planted the seeds of a very deflationary asset bubble bust.
Mike “Mish” Shedlock
I wonder which government statistic is the most worthless: CPI, U3, or GDP.
Don’t overlook the fastest rising component – “health insurance.” The y/y increase is 13.7% as seen in the more detailed tables of the report. Although the calculation is not “out-of-pocket” like most of the other items it still points to an unsustainable expense. True, the weighting is not large but for retired seniors it takes up a very large part of their budget.
When the 2008 bubble burst, real estate became a relative bargain. Note real housing prices were not included as such in CPI.
Investors with cash or good credit could pick up low priced real estate and hold it. Many did. However, the average wage earner was not in a position to speculate on real estate. Indeed, many were so under water they went bankrupt.
So the rich got richer. And many banks got bailed out.
Do we expect anything different when the present bubble bursts?
I hate to sound like a broken record but I have been saying, for a long time, on this board that deflation was already here. Deflation has been in the U.S. economy for years now and it will be here for many years to come. Deflation causes falling demand and wealth destruction. Just wait until all this consumer and business debt comes tumbling down and well…. you’ll see just what I have been talking about on Mish’s blog.
Don’t bother trying to censor me Mish. Your deflation story is just plain wrong. When you get on a role with your Trump Derangement Syndrome or your deflation fantasies… its time for everyone to stop watching this blog for a while.
Fantasize by yourself
Deflation is unavoidable. Too much overall debt. There will be a cascading default on this impossible to pay promissory notes. Money printing to cause runaway inflation won’t happen until the pain gets gut wrenching. The PTB to not want to print their wealth away into oblivion.
In a word, bullsh!t
Deflation is a political ploy to justify the Fed manipulating rates. Go shopping and see the prices going up, not down.
Real world prices matter. Your econ professors models are wrong.
When the crazies start in with their deflation nonsense, its time to take a long break from Mish Nonsense.
The cries that inflation is just around the corner has been going on for over a decade. With all the financial engineering that has been going on for this period…where is it? The fact of the matter is that deflation is the what has been worrying the Fed for all this time and they still don’t have a grip on it. It is a matter of time until it overwhelms them. No bullshit!
I remember all the “experts” warning of us crazy deflation after the 2008 bubble popping. CPI never went negative. Not at all. And for all the hysteria, CPI has only been negative yoy twice … both times during the great depression.
As many commenters have pointed out, CPI doesn’t include property tax hikes. It doesn’t reflect the cost of health care or the cost of sending ones kids to college.
True energy costs aren’t properly calculated. E90 and E85 are bad for gas mileage, and the ethanol destroys parts twice as fast. The liars at the BLS don’t factor in those hedonic adjustments. Parts (and labor!) to repair the damage done by ethanol should be included in any proper calculation.
But here goes Mish on another rant about ISLM models or some other theory that disagrees with reality. And he will try to claim that the Fed manipulating rates lower is somehow “proof” of deflation, when its really just proof the Fed is driving yields down.
Try factoring in the real cost of living Mish. Your deflation story just doesn’t hold up to real life
Well, in 2008 people underestimated the Fed’s ability to print their way out of the mess, at least temporarily. TARP mushroomed into something massive, ending up at $17T or something completely monstrous, far above the $700B reported. We have lots of zombie banks and zombie corporations running around as a result.
Just saw your post below and you seem to have a persecution complex. You showed up recently in a blaze of red team cheerleading glory, only to complain of TDS and threaten to walk away? Hope you find a suitable safe space to your liking.
The deflation thing only occurs if we continue to use the phony inflation calculations of the government. There is no way in heck you have all these property tax increases (48% over 4 years for me in Chicago) to pay for all the baby boomer government employee (underfunded) pensions without the costs being passed on somehow. The government doesnt include taxes in the inflation calculations since they assume the taxes will be passed along in other ways, like prices of products and services. You cant keep the lid on this for very long — eventually all these taxes will be reflected in prices — we cant all just absorb the losses and go out of business forever.
I find it interesting that before Illinois raised so many taxes recently the main topic was funding the pensions. Since the taxes passed the silence on pension funding is deafening. Even the pension fund that pays me monthly hasn’t said a word about funding recently. Have they really ‘solved’ the unfunded liability? I doubt it. All I hear about is more spending on buildings and pay increases in the public sector.
“Shelter is a whopping 33.2% of the entire CPI.”
All of which has to be paid for, one way or the other, by productive enterprise. For the sole purpose of keeping idle, useless, zero-to-negatove-value-add, deadweight leeches flush. Then add mandated “insurance,” implied cost of ambulance chaser shakedowns, compliance with one arbitrary, pointless regulation or another, and ever rising taxes, fees and levies. Across all of productive economy….
And yet the well indoctrinated, pliable gullibles out there, are dumb enough to fall for the headfake that is is “The Chinese” and “The Mexicans” who are rendering productive American enterprise noncompetitive………
Property taxes are not counted at ALL in the shelter component of CPI.
Those have been rising at close to a double-digit annual rate for years.
Owners certainly factor property taxes in when they decide how much to rent their property for. Thus, when the CPI includes rent, that includes property taxes.
Rent is insane near where I live. It’s cheaper to make mortgage payments.
And you should be able to get close to 2% on a money market account. Most limit the number of transactions but it’s like 12 a year.
Have you seen rents in the NYC area lately especially outside Manhattan where finding anything for less than $1800 a month even in the Bronx is near impossible. Tell me how do all these third world immigrants find housing so easily and do they have all the required paperwork and documents that everyone else needs to rent an apartment
The real illusion is many people think they can keep up with it all.